Currency Update – Tuesday 20th July

Currency Update – Tuesday 20th July

It is a sign of how much the Eurozone has stabilised that yesterday’s bad news for Ireland and Hungary has failed to knock the Euro; just a short while ago, when the Euro was on the defensive, the news would have sent the single currency tumbling further. Ireland has had its credit rating downgraded by Moody’s, although it is only by one notch, and Moody’s rating is now roughly in line with the other two rating agencies, in the past it would have seemed to confirm the decline of the Euro, now it just looks like a bump on the road to recovery. The same can be said for the problems in Hungary, which although is not (yet) part of the Eurozone, is closely tied to Eurozone countries which are heavily invested in it. Hungary have had their austerity measures rejected by the EU and the IMF for being too short term, which means they have to go back and draw up new measures. With yet more finance ministers predicting their banks will pass Friday’s stress test, the Euro has managed to shrug off the problem in Ireland and Hungary and keep up towards 1.30 against the Dollar.

The Pound dropped back yesterday, losing some of the ground it had gained against both the Dollar and the Euro. It has recovered a little strength overnight especially against the Dollar as some mixed corporate results left US stocks mostly flat. Haliburton are one of the three companies involved in the disastrous Mexican Gulf oil spill, but unlike BP they have seemingly escaped any censure, and their results yesterday topped analyst’s projections, although IBM’s results were less strong, which has left the Dollar directionless for the moment.

Although there was little data out yesterday for the UK, we did get some signs that house prices are dropping again from the Rightmove house price survey, and there is some worrying news that spending cuts implemented by the previous Labour administration, have only resulted in 38% of the savings intended. Government departments have become very adept at protecting their budgets, and have created ‘savings’ out of thin air by old tricks such as double counting and overestimating a projects cost and then calling the lower final cost a genuine saving. The problems show how hard it can be to implement spending cuts for the government, something that has to be done, if the UK, and the Pound, are to recover.

The data today is focused on government borrowing and lending within the economy in general. Government borrowing is expected to come in roughly the same as for the same month as last year, it will take some time for the government’s spending cuts to make any different to the monthly borrowing figures.

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